Supertrend(10,2) on NIFTY: a simple trend-following system

The idea

Supertrend is one of the most popular trend indicators among traders: a line that sits below the price in an uptrend and above it in a downtrend, flipping when the price closes through it. Used as a complete system, you are always in the market: long while it points up, short while it points down, reversing at each flip.

Most published Supertrend results are calculated on the NIFTY index itself, which can’t be traded. We wanted the honest version: the signal comes from the NIFTY index, but every trade is placed on NIFTY synthetic futures, with costs.

A synthetic future is a pair of options at the same strike: buy a call and sell a put for a long position, or the reverse for a short. It moves almost point for point with NIFTY futures but costs less to trade, because securities transaction tax is charged on the option premium rather than on the full contract value.

The rules

• Signal: Supertrend with a 10-bar ATR and a multiplier of 2, on 30-minute NIFTY index bars.
• Position: long when the Supertrend points up, short when it points down. Always in the market; each flip reverses the position.
• Trades: the signal is read at the bar’s close; the trade is placed at the next 30-minute bar’s open on NIFTY synthetic futures (at-the-money strike, monthly expiry).
• Cost: 2 points per round trip: about 1 point of charges and 1 point of slippage.
• No stop-loss or target: the opposite signal is the exit. Positions are carried overnight.

The backtest

Data: 1 October 2022 to 3 July 2026 (3¾ years), the full period for which we hold tradeable futures data. We use NIFTY futures prices to value the synthetic position, since the two move together. Positions are valued every 30 minutes, so the drawdown includes losses on open trades.

(t measures whether the average trade is distinguishable from zero; around 2 or more is needed before we call a result more than luck. ret/DD is the average profit per year divided by the worst drawdown.)

Year by year, per lot of 65 units:

*2022 from 1 October; 2026 up to 3 July.

What it takes in capital. A synthetic future needs about ₹2.0 lakh of margin per lot, similar to a NIFTY future. Add a buffer for the worst drawdown (2,864 points × 65 ≈ ₹1.9 lakh) and the capital to run it is about ₹3.9 lakh. On that, the average profit of about ₹1.5 lakh a year is a return of about 38% a year, and the worst drawdown took about 48% of the capital.

Robustness tests

• A genuine plateau. Every nearby setting made money; tighter or looser multipliers are worse but still positive.
• Both halves made money, though the second half was weaker.
• Profitable in 12 of 16 quarters. But the best quarter alone produced 39% of the total, and the five best trades 62% of it. Without them it still made +3,175 points.
• Not yet proven. With a 38% win rate and big winners, 525 trades over 3¾ years aren’t enough to rule out luck: the average trade’s t-statistic is 1.60, below the 2 we look for. That is why it scores 4 of 8.

Risks

• Overnight gaps. It is always in the market, so every position is carried overnight and over weekends. A gap against the position can’t be avoided.
• Leverage. Each lot moves about ₹65 for every NIFTY point; the worst drawdown took about half of a reasonably buffered account.
• Long losing stretches. With fewer than 4 trades in 10 winning, losing streaks are normal and can last weeks.
• Short history. 3¾ years of data covers mostly rising markets; long trades made most of the profit.
• Rolling and option liquidity. Positions held through a monthly expiry must be rolled (about 8 times a year, roughly 60 points over the whole test). Synthetic futures also need two option legs to fill at fair prices.

Pros & cons

Pros

• One indicator, one rule; easy to execute and to automate.
• Works across a wide range of settings, not one lucky combination.
• About 38% a year on capital in our test, far above a deposit.

Cons

• The edge isn’t statistically proven over this period.
• About half the capital lost in the worst stretch.
• Results lean on a few big trending moves.

Our verdict

Plain Supertrend(10,2), with signals from the NIFTY index and trades on synthetic futures, did what a simple trend-follower should: it made money in most quarters, in both halves of the test and at triple the costs, and it returned about 38% a year on a properly buffered account. It scores 4 of 8 because 3¾ years of data can’t yet prove the edge is more than luck, and because a few big trends supplied much of the profit. The key question is whether you can follow the rules consistently, especially through a drawdown that took half the capital.